Grain Market Update - Wheat (September 2016)

The following graph shows the movement in Chicago (CBOT) December 2016 Wheat Futures price and the 2016/17 APW Multigrade price delivered port.

Both the CBOT Futures Price and the APW Multigrade price have fallen away significantly since June. This is a result of surplus wheat stocks both domestically and worldwide.

Given high world wheat stocks, a significant increase in global wheat price seems unlikely in the short term. In addition, favourable growing conditions to date across much of Australia, has the potential to erode the basis in the short to medium term. However, this is also likely to lead to protein premiums increasing, due to the average protein level of the harvest being lower.

Currently the CBOT December 2016 Wheat Futures price is A$194/tonne equivalent and the APW Multigrade price is $223/t delivered port, reflecting a positive basis of A$29/tonne, which is relatively high for current seasonal conditions.

The domestic price at present is approximately a Decile 1 price, calculated on prices from 2009 to date. This provides little incentive for hedging at current values.

Assuming freight to port of $38/tonne, the present Multigrade price represents $185/tonne local depot. This compares with the average Break Even Price for clients of $190/tonne and $165/tonne for the top 20%.